Why does the interest rate on my savings account suck so hard?

I’ve never really been one to squabble over my bank’s interest rates. Historically I haven’t saved that much, and the interest I’ve earned on what I have saved has always amounted to such a pittance (~$10 or $20 per year), that I decided it wasn’t worth my time to relearn those formulas from Algebra I.

Recently though I sold my car, which netted a healthy chuck of change. Some of which I used to buy our scooters, and the rest I put in a money market savings account I opened at Wells Fargo (my bank). In the month between selling the car and buying the scooters I got the largest interest payment I’d ever seen, something like $16. I was livin’ large. But after that, I’ve been getting like $2 and change a month. So out of curiosity I decided to find out why.

My checking account at Wells Fargo pays no interest. This is pretty much par for the course. My savings account only pays 0.5% interest per year. That means if I have $1000 squirreled away, by the end of the year I’ll have $1005. Considering inflation hovers between 2 and 3%, my savings account is losing me money.

When I had over $10,000 in my Wells Fargo money market account (after selling my car), my interest rate was a whopping 1.54%, hence the “big” payout. But after purchasing the scooters and dropping below 10k, my graduated interest rate dropped too, to a measly 0.75%.

Now somewhere, someplace I got the idea that a good savings account should return between 4 and 5% interest, a long term CD between 5 and 6%, and a diversified stock market portfolio between 7 and 8% (over the long term). So I’m not sure why I’m suffering sub 1% interest rates at Wells Fargo.

Truth be told, the real reason I decided to look into all this was that I was checking on my IRA at Schwab when I saw them advertising an FDIC insured checking account with no minimum balance and an APY of 4.25%!

That itself wasn’t what caught my eye, because at the time I didn’t have a clue what sort of interest rates my Wells Fargo accounts had. What did strike me was this: “Zero ATM fees. We’ll automatically reimburse any ATM fees you’re charged.” Which for me would translate to no more hunting around for Wells Fargo ATMs, and no more worrying about stupid $2-3 per withdrawal ATM fees every time I need a twenty. That’s huge.

What’s the catch? You have to open it with a Schwab One Brokerage Account—basically their umbrella investment account for trading stocks, bonds, and mutual funds. My IRAs don’t count—they’re different. But I’d already been toying with the idea that it might be useful at some point to throw some money at the stock market. So this seems like a really good deal. After discovering how much my current savings accounts at Wells Fargo suck, it’s starting to look like an amazing deal.

Patrick, yup I stumbled upon bankrate.com just doing some preliminary searches for current interest rates. I’m definitely moving over the Schwab for checking, and then I’ll see about setting up a separate high-interest savings account for medium term savings.

I had the same problem with my Wells Fargo savings account (low interest), so I signed up online with Emigrant-Direct (Emigrant-Direct.com) and they will open a money market savings account attached directly to your Wells Fargo account, and pay 4.55% APR as of now (1/23/08). It’s liquid, and you can take it when you need it. Pretty painless. Good luck.

Why isn’t anybody looking at FIA’a. Some have fixed accounts that are paying 4.4% tax deferred! There’s also an opportunity to have interest crediting using a market index like the S&P or DOW without risking one penny of principal. Hey, the truth is all the indexes are down. Now may be a good time. Realtively short term 4 year walkaway.